The authors underscored the difficulties in making these decisions when they analyzed the impact of opening and closing stores on a firm’s value relative to that of its competitors. For example, 55 percent of the firms in the sample were unable to generate above-average value from launching stores, and 27 percent were unable to do so when shutting locations. And among firms that simultaneously opened and closed stores, 11 percent actually lost value from openings, compared with their peers, and showed no above-average performance from closings.
To effectively manage a contraction or expansion plan while staying in the good graces of investors, chains need to apply the analytic approach outlined in this paper, the authors write. And the good news, they say, is that this approach, built around the formulas that they supply to take account of the factors they’ve identified, can be relatively simple to implement.
The decision to open or close stores is a crucial part of chain retailers’ marketing and sales strategies, in turn affecting their partners and investors. And yet many retailers fail to generate significant performance benefits from either expanding or contracting. This paper outlines a way for firms to predict how their moves—and those of their competitors—are likely to affect shareholder value and company performance.
- Matt Palmquist is a freelance journalist based in Oakland, California.